We had a question from a client about what to expect following a market correction (my thanks to Sam for raising this).

On 13th March, the US stock market, as represented by the S&P 500 index, was down more than 10% from the record high reached just under a month earlier.

That put US equities in correction territory – so what next?

Markets don't move in a straight line. Just as night follows day, corrections are a natural part of investing. In fact, history tells us that market pullbacks of 5-10% tend to happen several times a year, while deeper corrections of 10-20% occur roughly every couple of years. Yet, more often than not, these downturns have been followed by substantial rebounds.

The key question isn't ‘Why is the market falling?’ but rather ‘What usually happens next?’

The table below shows that historically market corrections have been short-lived compared to the uptrends that follow. On average over the last ten years, after a 10% correction, the S&P 500 has recovered its losses and been back in positive territory within three months.

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Strongly positioned

Our multi-asset portfolios were strongly positioned for the latest correction. We maintain a balanced approach, ensuring portfolios have exposure to high-quality assets that can weather volatility. As always, our portfolios were diversified – holding a range of key global asset classes, reducing reliance on any single market. We were holding defensive equities – a spread of quality companies with strong balance sheets. These stocks tend to be resilient during downturns. We were also holding fixed income. As bond yields have stabilised, we have increased exposure to areas of fixed income that can act as a buffer in periods of market stress.

Regional performance

When the US equity market corrected, other regions showed strength. Europe, in particular, has outperformed, supported by solid earnings growth and an improving economic outlook. Asia, especially China, continues to show resilience, as economic activity gradually picks up. In addition, the UK has been benefiting from higher commodity prices, providing a boost to its equity markets.

By diversifying across geographies and business sectors, we seek to ensure that if one market, like the US, is experiencing volatility then we are positioned to benefit from positive performance elsewhere.

Key takeaway

Short-term pullbacks can feel uncomfortable, but they are rarely reasons to panic. Corrections often create opportunities. History shows that disciplined investors who stay invested through volatility are rewarded over time.

Staying patient and keeping sight of our long-term goals is the key to navigating these periods successfully.

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Find out more about our multi-asset solution

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This article is provided for general information purposes only and should not be construed as personal financial advice to invest in any fund or product. These are the investment manager’s views at the time of writing and should not be construed as investment advice. The opinions expressed are correct at time of writing and may be subject to change. Capital is at risk. The value and income from investments can go down as well as up and are not guaranteed. An investor may get back significantly less than they invest. Past performance is not a reliable indicator of current or future performance and should not be the sole factor considered when selecting funds.